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Almost one million families will be eligible for low- and no-interest loans under a new government-backed scheme aimed at saving low-income families from "loan sharks".
The Community Finance scheme, launched by Social Development Minister Paula Bennett in Manukau today, starts with $10 million in initial finance from the Bank of New Zealand and a small government subsidy for administrative costs.
The "front door" to the scheme will be the Salvation Army, initially on a pilot basis in its Manukau and Henderson offices where many clients have been paying interest to "loan sharks" of up to 10 per cent a week – 520 per cent a year.
The new scheme offers two kinds of fee-free loans:
* A no-interest loan scheme ('NILS') of up to $1000 for up to 18 months from early September.
* 'StepUp' loans of between $1000 and $5000 for up to three years at 6.99 per cent interest from today.
Both loans are only for "essentials" including buying and repairing second-hand cars, new household appliances and computers, and health and educational costs such as dentists or course fees. They are not available for other uses such as paying for bills, fines, funerals or travel.
Both are available to people who qualify for a community services card, have used up any entitlements they have for loans from Work and Income and can't borrow from mainstream banks, but can provide bank statements or other proof that they can repay the loans.
They also have to provide proof of identity, proof of address and documents showing all their existing payments on regular bills and debts.
In principle, most of the 913,450 families with community service cards on June 30 would be eligible. The cards are available to single people earning below $25,494 if sharing a home or $27,150 living alone, to couples earning up to $40,590, and to families receiving family tax credits and earning up to between $48,549 for a two-person family and $74,919 for a five-person family.
But in practice the scheme will start small. Salvation Army community ministries head Major Pam Waugh said the army was appointing only one loan officer in Manukau and one in Henderson with each expected to write up to 10 loans a week, implying a total of up to about 1000 loans a year.
Bank of New Zealand (BNZ) head of community finance Frances Ronowicz, who was recruited for the new role from her former job as operations manager for Instant Finance, said she would be happy if she could write five StepUp loans a week in the first few months.
"The pilot is to look at how the distribution might work, making sure the model is right," she said.
Both the NILS and StepUp loans have been copied from similar schemes run in Australia for the past decade by BNZ's parent company National Australia Bank and Good Shepherd Microfinance, founded in 1981 by Catholic nuns of the Good Shepherd.
The Australian scheme has made 135,000 NILS loans and 11,300 StepUp loans totalling more than A$100 million ($110 million) to date, with a A$6 million ($6.6 million) a year federal government administrative subsidy for three years up to June this year.
In New Zealand, a state subsidy believed to be about $250,000 a year for three years will be split between the Salvation Army and Good Shepherd Trust. The trust has provided all its intellectual property for the local scheme, will train Salvation Army and BNZ staff, and has appointed an Auckland-based project manager, Matt Halsey.
Mr Halsey, 42, is a trained lawyer who has worked for the United Nations Development Programme in Laos and reviewed micro-credit programmes in Bangladesh for the Leprosy Mission. He is now the mission's Auckland-based programmes manager.
"I have worked for a long time in international development but I wanted to change my focus to be working in New Zealand," he said.
"I have been looking for a job, saw this, and it was my dream job - it sounds corny but it quite literally has been."
Ms Ronowicz, who spent 10 years with Instant Finance, said she loved her time there and believed the firm behaved ethically. But she took the BNZ job when asked because "it's the right thing to do".
She said Salvation Army loans officers would interview loan applicants for about an hour and a half to help them work out a budget so they could repay a loan, even if they had a bad credit history with past loans.
Major Waugh said the army would help borrowers with ongoing budgeting, financial education and support.
"It's being proactive about not letting them get into trouble. We can help with food if they do have an extra big bill one week," she said. "Our purpose is to create a system where people can establish a good credit record."
-By Simon Collins of the New Zealand Herald